Tadros v. Celladon Corporation et al, No. 3:2015cv01458 - Document 78 (S.D. Cal. 2016)
Court Description: ORDER Granting 62 Defendant's Motion to Dismiss. Plaintiff's Consolidated Amended Complaint is dismissed in its entirety. We dismiss without prejudice and with leave to amend within 60 days from the date of the order. Signed by Judge Anthony J. Battaglia on 10/7/2016. (dls)
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Tadros v. Celladon Corporation et al Doc. 78 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 15 16 ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS Plaintiff, 13 14 Case No.: 15cv1458 AJB (DHB) WAHID TADROS, individually and on behalf of all others similarly situated, v. CELLADON CORPORATION, KRISZTINA M. ZSEBO, and REBECQUE J. LABA, Defendants. 17 18 19 Presently before the Court is Defendants Celladon Corporation, Krisztina Zsebo, 20 and Rebecque Laba’s (referred to collectively as “Defendants”) motion to dismiss lead 21 Plaintiff Wahid Tadros’s (“Plaintiff”) consolidated amended class action complaint. (Doc. 22 No. 62.) Concurrently with the motion to dismiss, Defendants filed a request for judicial 23 notice. (Doc. No. 63.) Plaintiff opposes the motion to dismiss and the request for judicial 24 notice. (Doc. Nos. 65, 67.) For the following reasons, Defendants’ motion to dismiss and 25 request for judicial notice is GRANTED with leave to amend.1 26 27 28 1 This motion is suitable for determination on the papers and without oral argument in accordance with Civil Local Rule 7.1.d.1. (Doc. No. 75.) 1 15cv1458 AJB (DHB) Dockets.Justia.com 1 I. RELEVANT BACKGROUND2 2 The instant action is a securities class action brought by Court appointed lead 3 Plaintiff individually, and on behalf of similarly situated persons and entities. The Class 4 Period at issue is from January 30, 2014 through June 25, 2015. (Doc. No. 58 ¶ 1.) Plaintiff 5 alleges that Defendants misled Celladon investors by creating materially false impressions 6 as to the success of the CUPID 1 clinical trial of Mydicar and the likelihood that the CUPID 7 2 clinical trial would succeed. 8 A. Parties to the Litigation 9 Plaintiff brings the instant action on behalf of himself and all others similarly 10 situated that purchased or otherwise acquired the publicly traded common stock or call 11 options of Celladon, or sold Celladon options, and that were damaged. (Id.) 12 Defendant Celladon Corporation (“Celladon”) was founded in December 2000 as a 13 “clinical-stage biotechnology company with industry-leading expertise in the development 14 of cardiovascular gene therapy.” (Id. ¶ 19.) 15 Defendant Krisztina Zsebo (“Zsebo”) was the chief executive officer of Celladon 16 and a member of its Board of Directors from 2004 through June 1, 2015. (Id. ¶ 20.) Zsebo 17 also served as President of Celladon from 2004 through June 2014. (Id.) Zsebo has a Ph.D. 18 in comparative biochemistry and is described as having “30 years of experience in the 19 pharmaceutical industry as well as experience with drug development.” (Id. ¶ 21.) (internal 20 quotation marks omitted). 21 Defendant Rebecque Laba (“Laba”) was Celladon’s vice president for finance and 22 administration from 2007 through the end of the class period. (Id. ¶ 22.) In this capacity, 23 Laba served as a consultant on finance and administration matters for the company from 24 2005 through 2007. (Id.) 25 /// 26 27 2 28 The following allegations are taken from the Plaintiff’s consolidated amended complaint and are construed as true for the limited purpose of ruling on this motion. Brown v. Elec. Arts, Inc., 724 F.3d 1235, 1247 (9th Cir. 2013). 2 15cv1458 AJB (DHB) 1 B. General Background: Heart Failure and Gene Therapy 2 Heart failure is a chronic and devastating medical condition where the heart is unable 3 to pump blood throughout the body properly. (Doc. No. 58 ¶ 29.) As a biotech company, 4 Celladon worked on developing gene-based therapies for cardiovascular diseases. 5 Celladon’s primary product candidate, called Mydicar, was intended to be a one-time gene 6 therapy treatment to replace portions of genetic material that regulates production of 7 SERCA2a (sarco/endoplasmic reticulum CA2+- ATPase), an enzyme that becomes 8 deficient in patients with heart failure. (Id. ¶¶ 32, 33.) 9 For a gene therapy to work, the corrective genetic material needs a delivery 10 mechanism or “vector” to carry it to the patient’s cells (Id. ¶ 34.) Mydicar used a “viral 11 vector” (specifically, adeno-associated virus 1, or “AAV1”) to deliver its gene therapy into 12 targeted cells, encapsulating the corrective genetic material in a shell made of harmless 13 viral protein that heart cells are known to absorb. (Id.) 14 C. Overview of FDA Regulations and Clinical Trials 15 There are three phases of clinical trials. (Id. ¶ 36.) A Phase I clinical trial will 16 generally test the product candidate on a small sample of patients to determine if there are 17 any safety issues, ascertain dose tolerance, and any possible adverse side effects of the 18 treatment. (Id.) A Phase II clinical trial investigates safety and efficacy on a slightly larger 19 scale, generally comparing patients receiving treatment with patients receiving a placebo. 20 (Id. ¶ 36.) Phase III clinical trials generally involve a larger test population with broader 21 geographic scope in an effort to further ascertain the drug’s efficacy and determine whether 22 the drug yields statistically significant results compared to a placebo or standard of care. 23 (Id.) 24 Each Phase of a clinical trial is tested against clinical endpoints which are pre- 25 specified scientific hypotheses that would establish success. (Id. ¶ 39.) Meeting the clinical 26 endpoints is critical to showing a positive outcome from treatment and ultimately in 27 obtaining FDA approval. (Id.) 28 /// 3 15cv1458 AJB (DHB) 1 D. Factual Allegations Underlying the Class Action Complaint (“CAC”) 2 1. CUPID 1, Stage 1 3 In December 2006, Celladon filed an investigational new drug (“IND”) application 4 in support of clinical development of Mydicar. (Doc. No. 58 ¶ 40.) An IND permits a 5 company developing medical treatments to undergo clinical trials to obtain regulatory 6 approval from the FDA. (Id. ¶ 35.) 7 In an article that was co-authored by Zsebo and published by the Journal of Cardiac 8 Failure in June of 2008, the underlying study was called “CUPID 1” (Calcium Up- 9 regulation by Percutaneous Administration of Gene Therapy in Cardiac Disease) (Id. at 10 41.) 11 CUPID 1 was comprised of Stage 1 (safety) and Stage 2 (preliminary indication of 12 clinical treatment effect), corresponding to the Phase I and Phase II testing described above. 13 (Id. ¶ 42.) In Stage 1, researchers tested the safety of Mydicar at various dosing levels by 14 administering four sequentially escalating doses of the product to 12 patients. (Id.) The test 15 subjects were monitored for any “clinically meaningful” immune response to AAVI 16 protein. (Id.) The primary endpoint for Stage 1-safety-was measured by the quantity and 17 severity of “adverse events,” which include death from any cause of progression of heart 18 failure leading to hospitalization. (Id. ¶ 43.) 19 On November 9, 2008, Celladon issued a press release announcing the initial safety 20 findings for the first nine patients that received Mydicar in Stage 1 of CUPID 1. (Id. ¶ 44.) 21 Data from the final three patients in Stage 1 testing, which included those patients 22 recovering from the highest dose of Mydicar were not included in the analyses that formed 23 the basis for this announcement. (Id. ¶ 44.) 24 The press release stated that the study had “show[n] the product was safe and 25 demonstrate[d] improvement across a number of key parameters.” (Id. ¶ 45.) The release 26 also quoted Zsebo as stating that the “data demonstrate[d] the safety of Mydicar, and the 27 improvements in cardiac function and overall condition observed in some patients further 28 validate our target and approach.” (Id.) 4 15cv1458 AJB (DHB) 1 2. CUPID 1, Stage 2 2 Stage 2 of CUPID 1 was a Phase II efficacy trial that compared the use of Mydicar 3 at 3 dose levels with placebo. (Doc. No. 58 ¶ 47.) Celladon announced that enrollment in 4 Stage 2 was complete on August 31, 2009. (Id.) The trial design included 24 subjects that 5 would be randomized to 1 of 3 doses of Mydicar. (Id.) Of those 24 subjects, 9 subjects 6 would be randomized to placebo. (Id.) 7 Stage 2 used a set of clinical endpoints designed to measure efficacy. (Id. ¶ 48.) The 8 study would be deemed demonstrative of clinical effect if at the group level, the group 9 mean improved in certain “domains.” (See Doc. No. 58 ¶ 48.) 10 On April 28, 2010, Celladon issued a press release announcing that the primary 11 endpoint for stage 2 of CUPID 1 had been met. (Doc. No. 58 ¶ 54.) On November 15, 2010, 12 Celladon issued another press release announcing the CUPID 1, Stage 2 long-term results, 13 presenting the full 12 months of trial data. (Id. ¶ 56.) Celladon stated that Stage 2, which 14 studied 39 patients, met primary safety and efficacy endpoints after 6 months of high-dose 15 Mydicar compared with placebo. (Id.) 16 3. Fast Track Status and Breakthrough Therapy Designation 17 On December 12, 2011, Celladon announced that the FDA’s Center for Biologics 18 Evaluation and Research (“CBER”) had granted Mydicar “Fast Track” status based upon 19 the results of CUPID 1. (Id. ¶ 88.) Fast Track status allows drugs that “treat a serious 20 disease” and fill an “unmet medical need” to have an accelerated review. (Id.) When 21 applying for Fast Track status, the FDA’s May 2014 Guidance for Industry: Expedited 22 Programs for Serious Conditions- Drugs and Biologics (“FDA Guidance”) states that a 23 submission for Fast Track designation is to contain basic information that “in most 24 cases…could be captured in approximately 10 to 20 pages.” (Id. ¶ 89.) 25 In a press release dated March 4, 2014, Celladon stated that it had received a Special 26 Protocol Assessment (“SPA”) in May 2012. (Id. ¶ 90.) Using the SPA, the FDA had agreed 27 that “time-to-recurrent events in the presence of terminal events was an acceptable primary 28 endpoint for any future Phase 3 trials.” (Id.) 5 15cv1458 AJB (DHB) 1 On April 10, 2014, Celladon issued a press release that announced the CBER had 2 granted “Breakthrough Therapy” designation to Mydicar based on the results of CUPID 1. 3 (Doc. No. 58 ¶ 94.) Like Fast Track Status, Breakthrough Therapy designation is a process 4 “designed to expedite the development and review of drugs that are intended to treat a 5 serious condition and demonstrate substantial improvement over available therapies.” (Id.) 6 4. CUPID 2 7 Due to the completion of CUPID 1, Celladon advanced to Phase IIb testing of 8 Mydicar, which it called CUPID 2. Celladon described CUPID 2 as a “phase 2b, double- 9 blind, placebo controlled, multinational, multicenter, randomized event-driven study in up 10 to 250 patients with moderate-to-severe heart failure…” (Id. ¶ 97.) CUPID 2 used only the 11 “high dose” of Mydicar as used in CUPID 1, and specifically sought out patients with a 12 “high risk for recurrent cardiovascular events requiring hospitalizations.” (Id. ¶ 97.) Unlike 13 CUPID 1, CUPID 2 had two defined investigatory endpoints. CUPID 2’s “primary efficacy 14 endpoint [was] time-to-recurrent events in the presence of terminal events at the primary 15 analysis data cutoff.” (Id. ¶ 98.) CUPID 2’s secondary efficacy endpoint was “time-to-first 16 terminal event.” (Id. ¶ 99.) These endpoints differed significantly from any of the 17 predefined efficacy endpoints identified in CUPID 1. (Id. ¶ 98.) In order to meet the study’s 18 primary endpoint, “CUPID 2 needed to show at least a 45% reduction in the risk of 19 recurrent events.” (Id. ¶ 100.) The clinical investigators made clear that the CUPID 2 study 20 design was “based on the results of the earlier CUPID 1 phase 2 study.” (Id.) 21 5. CUPID 2 Fails to Meet its Specified End Points 22 On April 26, 2015, Celladon issued a press release titled “Celladon Reports Negative 23 Results for CUPID 2 Trial of Mydicar in Advanced Heart Failure- Investigational gene 24 therapy fails to meet primary and secondary endpoints.” (Id. ¶ 168.) As a result of the news, 25 the price of Celladon stock plummeted 80%. (Id. ¶ 170.) On June 1, 2015, Celladon issued 26 a press release that announced that it would begin seeking an acquisition or partnership. 27 (Id. ¶ 174.) The press release also stated that Defendant Zsebo had resigned her positions 28 6 15cv1458 AJB (DHB) 1 as CEO and a member of the Board of Directors. (Id.) In total, Celladon common stock lost 2 95% of its value. (Doc. No. 58 ¶ 177.) 3 Plaintiff’s main contention is that CUPID 1 had fundamental shortcomings. For 4 example, the patients in the high-dose treatment group, “by nearly every measure and to a 5 statistically significant degree, were objectively healthier at baseline than the patients in 6 the placebo group.” (Id. ¶ 3.) Thus, the fact that patients receiving high-dose Mydicar were 7 healthier at the outset influenced the results showing Mydicar to be effective compared to 8 placebo. (Id.) In addition, Plaintiff argues that the post-hoc “sensitivity analyses” 9 conducted by Defendants to reassure the public of Mydicar’s effectiveness, was arbitrary 10 and biased. (Id.) Moreover, Plaintiff believes that CUPID 1’s unconventional domains and 11 endpoints would allow Mydicar to yield false positives. (Id. ¶ 4.) As a result, Plaintiff 12 argues that Defendants knew or should have known that CUPID 1 was so flawed in design 13 and execution that it could not be used as a basis to find that Mydicar had a positive effect 14 on heart disease patients or to proceed to phase IIb. (Id. ¶ 119.) 15 II. PROCEDURAL BACKGROUND 16 Plaintiff filed a complaint against the Defendants on July 2, 2015. (Doc. No. 1.) On 17 July 29, 2015, Defendants’ attorneys filed a Notice of Related Cases with this Court. (Doc. 18 No. 7.) On August 5, 2016, both parties filed a Joint Motion for Extension of Time to file 19 a response to the Complaint. (Doc. No. 8.) On August 7, 2015, the Court granted the Joint 20 Motion to Extend Defendants’ time to respond. (Doc. No. 11.) On August 31, 2015, 21 Plaintiff filed a motion to be appointed Lead Plaintiff. (Doc. No. 16.) On December 3, 22 2015, both parties agreed to appoint Plaintiff as the Lead Plaintiff and to consolidate the 23 cases. (Doc. No. 47.) On April 29, 2016, Defendants filed a motion to Dismiss Plaintiff’s 24 CAC. (Doc. No. 62.) On the same date, Defendants filed a request for judicial notice. (Doc. 25 No. 63.) On June 28, 2016, Plaintiff responded to Defendants’ motion to dismiss. (Doc. 26 No. 65.) Plaintiff filed an objection to Defendants’ request for judicial notice on June 28, 27 2016. (Doc. No. 67.) On July 21, 2016, this Court granted the parties’ joint motion to 28 continue the hearing on Defendants’ Motion to Dismiss from August 11, 2016 to 7 15cv1458 AJB (DHB) 1 September 22, 2016. (Doc. No. 70.) This case was fully briefed by both parties on July 28, 2 2016. (Doc. No. 73.) 3 III. THE ALLEGED MISLEADING STATEMENTS 4 The alleged misrepresentations and omissions are set forth in detail in the 5 “Defendants’ Materially False and Misleading Statements and Omissions of Material Fact” 6 section of the CAC. The crux of Plaintiff’s argument revolves around the contention that 7 Defendants knew or were reckless in not knowing that CUPID 1 was fundamentally flawed 8 in design and execution and that it could not be used as the basis to find that Mydicar had 9 demonstrated any positive effects on the test subjects or to proceed to Phase IIb of the 10 clinical trials. (Doc. No. 58 ¶ 127.) The following statements are the alleged misleading 11 statements cited by Plaintiff in the CAC. 12 A. IPO Registration 13 On October 11, 2013, Celladon filed an initial public version of a Form S-1 14 Registration Statement and Prospectus with the SEC, and later filed several amendments 15 to the Form S-1. (Id. ¶ 110.) The Registration Statement was signed by Defendants Zsebo 16 and Laba, and stated: 17 18 19 20 21 22 23 24 In Phase 2a of our Cupid 1 trial, 29 patients with systolic heart failure, . . . were enrolled in a randomized, double-blind, placebo controlled trial, where Mydicar was found to be safe and welltolerated, reduced heart failure-related hospitalizations, improved patients’ symptoms, quality of life and serum biomarkers, and improved key markers of cardiac function predictive of survival, such as end systolic volume. Based on these results, as well as our previous preclinical studies and clinical trials, we advanced Mydicar to an approximately 250patient randomized, double-blind, placebo-controlled international Phase 2b trial in patients with systolic heart failure, which we refer to as CUPID 2. 25 26 27 28 (Id. ¶ 111.) The Registration Statement further stated: [T]he relative risk reductions or hazard ratios, at 12 months for the high-dose Mydicar group versus placebo for recurrent 8 15cv1458 AJB (DHB) 1 adjudicated clinical events was 0.12, p=0.003 (where the p-value is the statistical probability of a result due to chance alone), representing a risk reduction of 88% for these important events with the high-dose Mydicar. At 36 months, the high-dose Mydicar group versus placebo for recurrent adjudicated clinical events was 0.18, p=0.048, representing a risk reduction of 82% for these important events with high dose Mydicar. 2 3 4 5 6 7 (Doc. No. 58 ¶ 112.) B. 2013 Form 10-K & March 31, 2014 Conference Call 8 9 10 On March 31, 2014, Celladon filed its Form 10-K Annual Report with the SEC for the year ending December 31, 2013 (2013 Form-K”). (Id. ¶ 120.) The 2013 Form-K was signed by Defendant Zsebo and Laba, and stated: 11 12 In Phase 2a of our CUPID 1 trial, 39 patients with heart failure,… were enrolled in a randomized, double-blind, placebo controlled trial, Mydicar was safe and well-tolerated, reduced heart failure-related hospitalizations, improved patients’ symptoms, quality of life and serum biomarkers, and improved key markers of cardiac function predictive of survival, such as end systolic volume. Based on these results, as well as our previous previous preclinical studies and clinical trials, we advanced Mydicar to a 250-patient randomized, double-blind, placebocontrolled international Phase 2b trial in patients with [heart failure] which we refer to as CUPID 2. 13 14 15 16 17 18 19 20 (Id.) 21 Also on March 31, 2014, Defendants held a conference call with analysts to discuss 22 Celladon’s 2013 financial results. (Doc. No. 58 ¶ 124.) During the call, Defendant Zsebo 23 stated: 24 25 26 27 28 In our previous clinical studies of MYDICAR, we had demonstrated initial safety and evidence of improvement in a number of parameters important in heart failure therapeutic assessments as well as improved clinical outcome. Specifically, our Phase 2a trial, which we referred to as CUPID 1, demonstrated that high dose MYDICAR provided substantial improvement when added to an optimized heart failure regimen. 9 15cv1458 AJB (DHB) 1 MYDICAR high dose subjects had a decreased frequency of cardiovascular events, primary hospitalizations at 12 months versus placebo subject on optimized background therapy. Statistically measuring this treatment effect, we observed a hazard ratio of 0.12 or an 88% risk reduction of these cardiovascular events with a p-value of 0.003. 2 3 4 5 6 7 8 9 10 11 (Doc. No. 58 ¶ 124.) Defendant Zsebo also stated during the conference call that Celladon had advanced Mydicar to a Phase IIb trial “based on these very encouraging results.” (Id. ¶ 125.) Additionally, in response to a question from an analyst, Defendant Zsebo responded, “in CUPID 1, all Mydicar dose groups demonstrated a reduced hospitalization rate as well as reduced mortality.” (Id.) C. April 10, 2014, Breakthrough Therapy Announcement 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 On April 10, 2014, Celladon issued a press release announcing that it had received a Breakthrough Therapy Designation from the FDA. (Id. ¶ 128.) The press release described Mydicar as “novel” and “first-in-class” with Defendant Zsebo also stating that the designation “validate[d] Mydicar’s unique characteristics and clinical data to date …” (Id.) D. May 13, 2014, Conference Call On May 13, 2014, Defendants held a conference call with analysts to discuss Celladon’s results for the first quarter of 2014. (Id. ¶ 130.) During the call, Defendant Zsebo reiterated the position that the FDA’s Breakthrough Therapy designation “validated Mydicar’s unique characteristics” and was “a testament to the strength of the clinical data to date, wherein the CUPID 1 trial Mydicar high dose subjects had an 88% reduction of cardiovascular events with a p-value of 0.003.” (Id. ¶ 131.) E. Jefferies 2014 Global Healthcare Conference From June 2 through June 5, 2014, Jefferies LLC held its 2014 Global Healthcare Conference in New York City, a meeting that was attended by a broad range of public and private healthcare companies and potential investors. (Id. ¶ 133.) Defendant Zsebo 28 10 15cv1458 AJB (DHB) 1 presented at the conference on June 5, 2014. (Doc. No. 58 ¶ 133.) Plaintiff asserts that 2 Defendant Zsebo’s presentation falsely highlighted Mydicar’s “Promising Phase 2a 3 Results” as demonstrating an 88% reduction in hospitalizations. (Id. ¶ 134.) Defendant 4 Zsebo’s presentation included a PowerPoint presentation, excerpts of which are included 5 in the CAC. (Doc. No. 58 at 45–47.)3 The slides cited by Plaintiff stated, “Mydicar reduced 6 adjudicated heart failure clinical events through 12 months” for patients receiving high 7 doses. (Id. at 45.)4 8 IV. LEGAL STANDARD 9 A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a plaintiff’s 10 complaint. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “A court may dismiss 11 a complaint as a matter of law for (1) lack of cognizable legal theory or (2) insufficient 12 facts under a cognizable legal claim.” SmileCare Dental Grp. v. Delta Dental Plan of Cal., 13 88 F.3d 780, 783 (9th Cir. 1996) (internal citation omitted). However, a complaint will 14 survive a motion to dismiss if it contains “enough facts to state a claim to relief that is 15 plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In making 16 this determination, a court reviews the contents of the complaint, accepting all factual 17 allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. 18 Cedars-Sinai Med. Ctr. v. Nat’l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 19 2007). 20 Notwithstanding this deference, the reviewing court need not accept legal 21 conclusions as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). It is also improper for a 22 court to assume “the [plaintiff] can prove facts that [he or she] has not alleged.” Associated 23 Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 24 25 26 27 28 3 All pincite page references refer to the automatically generated CMECF page number, not the page number in the original documents. 4 The Court notes that Plaintiff also lists statements from an August 7, 2014 press release, Celladon’s secondary stock offering, presentations from the Best of Circulation Research Symposium, and Celladon’s 2014 Form 10-K. The Court finds these statements to mimic the ones listed above and thus finds it unnecessary to repeat each statement again. 11 15cv1458 AJB (DHB) 1 (1983). However, “[w]hen there are well-pleaded factual allegations, a court should assume 2 their veracity and then determine whether they plausibly give rise to an entitlement to 3 relief.” Iqbal, 556 U.S. at 679. 4 V. REQUEST FOR JUDICIAL NOTICE 5 “Although generally the scope of review on a motion to dismiss for failure to state a 6 claim is limited to the complaint, a court may consider evidence on which the complaint 7 necessarily relies if: (1) the complaint refers to the document; (2) the document is central 8 to the plaintiff [‘s] claim; and (3) no party questions the authenticity of the copy attached 9 to the 12(b)(6) motion.” Daniels–Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 10 2010) (internal quotation marks and citations omitted). Federal Rule of Evidence 201(b) 11 permits judicial notice of a fact when it’s “not subject to reasonable dispute because it: (1) 12 is generally known within the trial court’s territorial jurisdiction; or (2) can be accurately 13 and readily determined from sources whose accuracy cannot reasonably be questioned.” 14 Welk v. Beam Suntory Imp. Co., 124 F. Supp. 3d 1039, 1041–42 (S.D. Cal. 2015). 15 Defendants request judicial notice of several exhibits filed in support of their motion 16 to dismiss. (See Doc. No. 63.) Defendants contend all of the documents are appropriate 17 subjects for consideration under Rule 201 or the doctrine of incorporation by reference. 18 (Id.) Plaintiff filed an objection to Defendants’ request for judicial notice, urging the Court 19 not to consider Exhibits 15, 25, and 27. (Doc. No. 67.) As Plaintiff does not oppose Exhibits 20 1-14, 16-24, and 26, Defendants’ request for judicial notice is GRANTED as to these 21 exhibits. The Court will now turn to Plaintiff’s objections. 22 Plaintiff objects to the Court taking judicial notice of Exhibit 15, The Motley Fool 23 Article published on October 13, 2014, titled “Why Shares in Celladon Corp. Burst Today” 24 (Doc. No. 67 at 3) and the March 25, 2015, The Street article, entitled “Celladon Heart- 25 Failure Study Looms Large as Next Big Test for Gene Therapy.” (Id. at 4.) Plaintiff argues 26 that Defendants do not incorporate the article by reference or otherwise rely upon it in the 27 CAC, and therefore the Court may not consider it in ruling on Defendants’ motion to 28 dismiss. (Id.) 12 15cv1458 AJB (DHB) 1 Defendants request the Court take judicial notice of all Exhibits, 1–25, on the 2 grounds that the information was “publicly available to reasonable investors at the time the 3 defendant made statements plaintiffs alleged were fraudulent.” (Doc. No. 63 at 8) (quoting 4 In re First Union Corp. Sec. Litig., 128 F. Supp. 2d 871, 883 (W.D.N.C. 2001). 5 Courts may take judicial notice of publications introduced to “indicate what was in 6 the public realm at the time, not whether the contents of those articles were in fact true.” 7 Von Saher v. Norton Simon Museum of Art at Pasadena, 592 F.3d 954, 960 (9th Cir. 2009) 8 citing Premier Growth Fund v. Alliance Capital Mgmt., 435 F.3d 396, 401 n. 15 (3d Cir. 9 2006). See also Brodsky v. Yahoo! Inc., 630 F. Supp. 2d 1104, 1111 (N.D. Cal. 2009) (“The 10 Court also grants Defendants’ request [for judicial notice] as to Exhibits 31 through 47, 11 Yahoo! Press releases, news articles, analyst reports, and third party press releases to which 12 the SAC refers, but not for the truth of their contents”) (emphasis added)). Accordingly 13 the Court GRANTS Defendants’ request for judicial notice as to these two exhibits to 14 demonstrate what was in the public realm at that time but not to indicate that the contents 15 of the articles are true. 16 Lastly, Plaintiff objects to the Court’s consideration of Exhibit 27, a chart prepared 17 by defense counsel “as it is cumulative of and mischaracterizes the allegations of the 18 complaint.” (Doc. No. 67 at 2.) In response, Defendants argue that the statements presented 19 in the chart are “quoted directly from the CAC” and are not altered. (Doc. No. 73 at 5.) 20 Courts can take judicial notice of charts that compile information. See Garden City 21 Empl. Ret. Syst. v. Anixter Int’l. Inc., 2011 WL 1303387, at *9 (N.D. Ill. Mar. 31. 2011) 22 (Deciding that though a District of Columbia ruling was not controlling, the court agreed 23 that the chart at issue did not “present any information or argument that is not contained in 24 [defendant’s filing]; it is simply the same argument from the reply presented in a different 25 manner”)). The Court finds the same situation present here. Defendants’ chart compiles the 26 allegedly misleading statements together with a reference to where it appears in Plaintiff’s 27 and Defendants’ motions. The statements are unaltered but are simply presented in an 28 13 15cv1458 AJB (DHB) 1 organized, easy to use format. Thus, Defendants’ request for judicial notice of this exhibit 2 is GRANTED.5 3 VI. 4 A. Section 10(b) of Securities and Exchange Act and the PSLRA DISCUSSION 5 Plaintiff asserts claims under § 10(b) of the Securities Exchange Act of 1934 and 6 Rule 10b–5 against Celladon (Count I), and individual Defendants Zsebo and Laba (Count 7 II). 8 Section 10(b) forbids (1) the use or employment of any deceptive device, (2) in 9 connection with the purchase or sale of any security, and (3) in contravention of Securities 10 and Exchange Commission (“SEC”) rules and regulations. 15 U.S.C. § 78j(b); see Dura 11 Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341 (2005). Rule 10b–5, promulgated by 12 the SEC under § 10(b), forbids the making of any “untrue statement of a material fact” or 13 the omission of any material fact “necessary in order to make the statements made not 14 misleading.” 17 C.F.R. § 240.10b–5; see Dura Pharmaceuticals, Inc., 544 U.S. at 341. 15 To succeed in a private civil action under § 10(b) and Rule 10b–5, a plaintiff must 16 establish “(1) a material misrepresentation (or omission); (2) scienter, i.e., a wrongful state 17 of mind; (3) a connection with the purchase or sale of a security; (4) reliance ...; (5) 18 economic loss; and (6) loss causation, i.e., a causal connection between the material 19 misrepresentation and the loss.” Dura Pharmaceuticals, 544 U.S. at 341–42. 20 In support of dismissal, Defendants argue that Plaintiff has not adequately pled each 21 element of §10(b) and Rule 10(b)-5. For the reasons mentioned below, the Court GRANTS 22 Defendants’ motion to dismiss. 23 /// 24 /// 25 26 5 27 28 The Court notes that Plaintiff objects to Defendants’ use of three argumentative titles for the chart at issue. (Doc. No. 67 at 5.) The Court clarifies that it is only taking judicial notice of the chart and its organization of the allegedly misleading statements and not of the three topic headers used by Defendants. 14 15cv1458 AJB (DHB) 1 1. Materially False and Misleading 2 “Before the passage of the Private Securities Litigation Reform Act of 1995 3 (“PSLRA”), the pleading requirements in private securities fraud litigation were governed 4 by Fed. R. Civ. P. 9(b), which required only that ‘falsity’ be pled with particularity; scienter 5 could be averred generally.” Lipton v. Pathogenesis Corp., 284 F.3d 1027, 1034 n. 12 (9th 6 Cir. 2002). The PSLRA, however, imposed a heightened pleading standard in securities 7 litigation and required that a complaint plead with particularity both falsity and scienter. 8 Id. To meet the heightened pleading requirement, the complaint “must contain allegations 9 of specific contemporaneous statements or conditions that demonstrate the intentional or 10 deliberately reckless false or misleading nature of the statements when made.” In re Read- 11 Rite Corp. Sec. Litig. v. Read-Rite Corp., 335 F.3d 843, 846 (9th Cir. 2003). 12 “Falsity” is any “untrue statement of a material fact.” 15 U.S.C. § 78u–4(b)(1). It 13 also occurs when a defendant “omitted to state a material fact necessary in order to make 14 the statements made, in light of the circumstances in which they were made, not 15 misleading.” Id. “Often a statement will not mislead even if it is incomplete or does not 16 include all relevant facts.” Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th 17 Cir. 2002). Instead “a statement is misleading if it would give a reasonable investor the 18 impression of a state of affairs that differs in a material way from the one that actually 19 exists.” Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 985 (9th Cir. 2008) (internal 20 citation and quotation marks omitted)). 21 To plead falsity with particularity, a complaint must “specify each statement alleged 22 to have been misleading [and] the reason or reasons why the statement is misleading.” In 23 re Vantive, 283 F.3d 1079, 1085 (9th Cir. 2002); 15 U.S.C. § 78u–4(b)(1). If allegations 24 are made on information and belief, “a plaintiff must provide, in great detail, all the relevant 25 facts forming the basis for her belief.” In re Silicon Graphics Inc. Sec. Litig, 183 F.3d 970, 26 985 (9th Cir. 1999); see also 15 U.S.C. § 78u–4(b)(1) (“[I]f an allegation regarding the 27 statement or omission is made on information and belief, the complaint shall state with 28 particularity all facts on which that belief is formed”). “If the challenged statement is not 15 15cv1458 AJB (DHB) 1 false or misleading, it does not become actionable merely because it is incomplete.” In re 2 Vantive, 283 F.3d at 1085. 3 Here, Plaintiff provides this Court with a great deal of facts but fails to sufficiently 4 plead with particularity how each statement is allegedly misleading. Instead, after each 5 allegedly misleading statement, Plaintiff directs the Court to look at parts IV F-H in the 6 CAC to explain why Defendants knew or were reckless in not knowing that CUPID 1 was 7 allegedly flawed. (Doc. No. 58 ¶ 119.) Plaintiff then repeatedly states the same conclusory 8 argument; that Defendants “knew or were reckless in not knowing” that CUPID 1 was 9 “fundamentally flawed in design and execution that it could not be used as the basis to 10 either find that Mydicar had, in fact demonstrated those effects [reduction in heart disease], 11 or, therefore, to proceed to Phase IIb.” (Id. ¶ 119, 127, 132, 135, 143, 150, 159). 12 One of Plaintiff’s main arguments is that Defendants are liable as participants in a 13 “fraudulent scheme” that operated as a fraud or deceit on purchasers of Celladon securities 14 by disseminating materially false and misleading statements and concealing adverse facts. 15 (Id. ¶ 28.) However, this statement whether made on information or belief or sufficient 16 facts, fails to provide specific information to successfully argue that Defendants allegedly 17 schemed to create faulty tests that would help Mydicar pass FDA clinical trials, knew the 18 clinical data was flawed, or that Defendants ignored the allegedly defective test results. 19 Plaintiff’s only supporting evidence is that the placebo group in CUPID 1 was supposedly 20 less healthy than the high-dose Mydicar groups at the onset of the clinical trial. Plaintiff 21 also tries to bolster his argument by stating that the post-hoc sensitivity analyses done by 22 Defendants to ensure the public of Mydicar’s effectiveness was also flawed. (Id. ¶ 67.) 23 Under the heightened standard of the PSLRA, the broad arguments presented by Plaintiff 24 do not provide sufficient facts or information to successfully plead that Defendants Zseba 25 and Laba intentionally manipulated the CUPID 1 clinical trial, recklessly ignored clinical 26 data or schemed to alter the sensitivity analyses all to defraud investors and drive up stock 27 prices. See Ronconi v. Larkin, 253 F.3d 423, 429-30 (9th Cir. 2001) (“holding that 28 complaint did not sufficiently plead falsity where it alleged that defendant made false 16 15cv1458 AJB (DHB) 1 statements about earnings and sales expectations and that defendant stated that plan to cut 2 jobs and costs was “on track,” but complaint did not allege facts showing that defendant 3 knew at the time that predictions were inaccurate”)). 4 In In re Immune Response Sec. Litig., 375 F. Supp. 2d 983, 1019-20 (S.D. Cal. 5 2005), plaintiffs argue that defendants in that case committed fraud by publicly reporting 6 results that “they knew or should have known were either so incomplete or so statistically 7 flawed as to lack clinical significance.” Similarly, in the present matter, Plaintiff is alleging 8 that Defendants knew or should have known that the clinical trials showing Mydicar as 9 effective were flawed and could not provide a sound basis to proceed to CUPID 2. 10 However, in direct contrast, plaintiffs in In re Immune Response Sec. Litig., provided that 11 court with “corroborating details of the internal reports, cite to specific reports, mention 12 the dates or contents of reports and allege their sources of information about the reports.” 13 Id. In addition, plaintiffs in that case also demonstrated contemporaneous facts which 14 suggest the falsity of defendant’s statements. Id. See In re Maxim Integrated Products, Inc., 15 574 F. Supp. 2d 1046, 1063-64 (2008) (finding that plaintiffs complaint adequately pleads 16 that defendants made material misrepresentations because defendants representations were 17 later shown to be false when the company announced that it would restate its financials)).6 18 Here, we are not presented with any contemporaneous statements or specific facts to show 19 falsity. In fact, Plaintiff’s CAC provides more support against Plaintiff’s arguments by 20 providing positive evidence of Mydicar’s fast track and breakthrough status, Celladon’s 21 success in raising over $100 million from venture capital funds and capital markets and 22 press releases from other sources touting Mydicar’s optimistic results. (Doc. No. 58 ¶¶ 105- 23 24 25 26 27 28 6 The Court notes that Plaintiff also argues that the absence of effect at the low- and mid-dose levels of Mydicar in heart disease patients also proves that there were “flaws” in the “study design.” (Doc. No. 58 ¶ 74.) However, Celladon’s form 10k filing highlights this issue and as a result Celladon did a study to better determine the results and found that “in the low- and mid-dose groups, we [Celladon] believe the dose was not sufficient to insert the SERCA2a gene in enough cells. Our hypothesis for why the lowand mid-dose groups demonstrate a delay of the onset of clinical events which is not durable relates to the short term increase in blood flow into the heart after MYDICAR therapy; higher doses are required to insert the gene deep into the cardiac muscles.” (Doc. No. 62-2, Ex. A at 19). 17 15cv1458 AJB (DHB) 1 109, 117-118.) Plaintiff reliance on the baseline indifferences between the placebo and high 2 dose Mydicar group to propel his argument is not adequate to satisfy the heightened 3 pleading standard under the PSRLA. As a result, Plaintiff’s main contention that 4 Defendants’ positive statements regarding Mydicar’s efficacy in the IPO Registration, SEC 5 filings, conference call transcripts and press releases were all misleading when made fails. 6 Lastly, the Court notes that Plaintiff’s catalogue of press releases and conference call 7 transcripts, also contain a number of comments made by Defendant Zsebo regarding 8 Mydicar’s success in the clinical trials. The Court finds these statements to be non- 9 actionable. “Vague, generalized, and unspecific assertions” of “corporate optimism or 10 statements of mere puffing” cannot state actionable material misstatements of fact under 11 federal securities law.” See Glen Holly Entm’t. Inc. v. Tektronix. Inc., 352 F.3d 367, 379 12 (9th Cir. 2003). The non-actionable statements, or otherwise termed puffery rule, does have 13 an outer boundary. The Ninth Circuit has defined the point at which a projection of 14 optimism becomes an “actionable, factual misstatement under section 10(b), namely, when 15 ‘(1) the statement is not actually believed, (2) there is no reasonable basis for the belief, or 16 (3) the speaker is aware of undisclosed facts tending seriously to undermine the statement’s 17 accuracy.’” In re Cornerstone Propane Partners, L.P., 355 F. Supp. 2d 1069, 1087) citing 18 Grossman, 120 F.3d at 1119. 19 The Court finds that Defendants’ statements regarding the “encouraging results” of 20 Mydicar and “Mydicar’s unique characteristics” are all projections of general optimism. 21 (Doc. No. 58 at 42-43.) The March 31, 2014, May 13, 2014, and August 7, 2014 conference 22 calls and Celladon’s April 10, 2014 press release that state phrases such as “encouraging 23 results” and “unique characteristics” are all generalized statements of corporate optimism. 24 Here, Defendants are speaking about Mydicar’s success in CUPID 1 and its continual 25 movement with Fast Track and Breakthrough Therapy status. Plaintiff has not provided 26 this Court with any facts to prove that Defendants didn’t believe Mydicar’s positive clinical 27 data or that they did not believe that Mydicar was not performing as they stated. 28 Accordingly, as the complaint fails to provide information or facts that would undermine 18 15cv1458 AJB (DHB) 1 Defendants’ belief in the optimistic projections of Mydicar, Defendants’ statements do not 2 give rise to liability under the PSLRA. 3 Whether pled on information or belief or through factual allegations, Plaintiff’s 4 generalized allegations fail to sufficiently plead a cause of action under the first prong of 5 his 10(b) claim. As a result, Defendants’ motion to dismiss is GRANTED. However, as 6 this Court will be granting Plaintiff leave to amend its complaint, the Court will continue 7 and analyze Plaintiff’s scienter claims to see if they satisfy the heightened pleading 8 standards specified under the PSLRA.7 9 2. Scienter 10 “Scienter is [the] essential element of a § 10(b) claim.” In re Read–Rite Corp., 335 11 F.3d 843, 846 (9th Cir. 2003); see also Lipton, 284 F.3d 1027, 1035 n.15 (9th Cir. 2002) 12 (“Scienter is an essential element of a § 10(b) or Rule 10b–5 claim”)). The Supreme Court 13 has explained that scienter for purposes of § 10(b) and Rule 10b–5 is “the defendant’s 14 intention to deceive, manipulate or defraud.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 15 551 U.S. 308 (2007). To satisfy this standard, a plaintiff must show that a defendant acted 16 intentionally or with “deliberate recklessness.” In re Silicon Graphics, 183 F.3d at 974. 17 The Ninth Circuit has held that “recklessness only satisfies scienter under § 10(b) to the 18 extent that it reflects some degree of intentional or conscious misconduct.” Id. at 977. 19 Deliberate recklessness is “conduct [that] may be defined as a highly unreasonable 20 omission, involving not merely simple, or even inexcusable negligence, but an extreme 21 departure from the standards of ordinary care, and which presents a danger of misleading 22 buyers or sellers that is either known to the defendant or is so obvious that the actor must 23 have been aware of it.” Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569 (9th Cir. 24 1990). 25 26 7 27 28 The Court cautions Plaintiff from using the word “design” or creating an argument around the design of Celladon’s clinical testing if it decides to amend its complaint as “mere disagreements over statistical methodology and study design are insufficient to allege a materially false statement.” In re Rigel Pharm., Inc. Sec. Litig. v. Andre Deleage, 697 F.3d 869, 877-78 (9th Cir. 2012). 19 15cv1458 AJB (DHB) 1 “In assessing whether Plaintiffs have sufficiently pled scienter [the Court] must 2 consider whether the total of plaintiffs’ allegations, even though individually lacking, are 3 sufficient to create a strong inference that defendants acted with deliberate or conscious 4 recklessness.” Nursing Home Pension Local 144 v. Oracle Corp., 380 F.3d 1226, 1230 5 (9th Cir. 2004). “In determining whether a strong inference of scienter exists, [the Court] 6 must consider all reasonable inferences, whether or not favorable to the plaintiff.” Id.; see 7 Gompper v. VISX, Inc., 298 F.3d 893, 897 (9th Cir. 2002) (noting the “inevitable tension... 8 between the customary latitude granted the plaintiff on a [12(b)(6)] motion to dismiss...and 9 the heightened pleading standard set forth under the PSLRA”). 10 “Where pleadings are not sufficiently particularized or where, taken as a whole, they do 11 not raise a strong inference of scienter, a Rule 12(b)(6) dismissal is proper.” Lipton, 284 12 F.3d at 1035; see also No. 84 Empl’r–Teamster Joint Council Pension Trust Fund v. 13 America West Holding Corp., 320 F.3d 920, 931–32 (9th Cir. 2003) (“If a plaintiff fails to 14 plead either the alleged misleading statements or scienter with particularity, his or her 15 complaint must be dismissed.”). 16 Parts IV of the CAC fails to establish a strong inference of scienter. Plaintiff does 17 not provide any specific factual allegations that point to Defendants intent to manipulate 18 the clinical trials, or intent to deceive the public. See In re Immune Response Sec. Litig., 19 375 F. Supp. 2d at 1023 (holding that plaintiffs adequately pled scienter by providing the 20 court with “specific factual allegations including the names of persons involved in the 21 alleged fraud, the reports which evidence the alleged fraud, and the actions of Defendants 22 in perpetuating the fraud”). 23 Plaintiff also lists a variety of additional arguments to support its inference of 24 scienter. As scienter must be analyzed based on the totality of allegations provided in the 25 complaint, disposition of the issue will be reserved until this section’s conclusion. See 26 Gompper, 298 F.3d at 897. 27 /// 28 /// 20 15cv1458 AJB (DHB) 1 2 a. Scienter Alleged by the Nature of the Flawed CUPID 1 Trial and that Mydicar was Celladon’s Only Viable Product Candidate 3 Plaintiff’s first two arguments allege that Scienter can be alleged by: (1) the nature 4 of the flawed CUPID 1 trial and that (2) Mydicar was Celladon’s only viable product 5 candidate. (Doc. No. 58 ¶¶ 182-187.) Specifically, Plaintiff argues that Defendants hid the 6 flawed data of CUPID 1 so as to save Defendants the cost and delay of having to re-conduct 7 a Phase IIa clinical trial. (Id. ¶ 182.) 8 The Court believes that Plaintiff pleads these facts to argue both motive and 9 opportunity. In Acito v. IMCERA Group, Inc., 47 F.3d 47, 53-54 (2d Cir. 1995), the court 10 held that allegations that corporate insiders were motivated to defraud the public to achieve 11 12 13 14 15 16 an inflated stock price or to increase executive compensation were insufficient to prevent dismissal under Rule 9(b) and Rule 12(b)(6). Here, the CAC clearly states that “CUPID 1 results were published only a few months prior to the Company’s efforts to attract private investors through rounds of venture capital funding” and Celladon’s public decision to proceed with Phase IIb testing were central to venture capital investors’ decision to invest providing a “strong motive” for Defendants’ misrepresentations. (Doc. No. 58 ¶ 183.) As such, these two factors alone do not provide a strong indicia of scienter. 17 b. Scienter Alleged Through Celladon being a Small Company 18 Plaintiff alleges that Defendants Zsebo and Laba worked “side-by-side and were 19 hands-on executives, closely familiar with all of the Company’s research and development 20 and the Mydicar project in particular.” (Id. ¶ 61.) In other words, Plaintiff is arguing an 21 inference of scienter through the core operations concept. The core-operations theory is 22 applied in securities cases and permits courts to infer that corporate executives are aware 23 of “facts critical to a business’s core operations or an important transaction [which] are so 24 apparent that their knowledge may be attributed to the company and its key officers.” South 25 Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 782-83 (9th Cir. 2008). However, “a plaintiff 26 must allege more than that directors should have known or must have known about matters 27 28 relating to the corporation’s ‘core business’”. In re Accuracy, Inc. S’holder Deriv. Litig., 757 F. Supp. 2d 919, 928 (N.D. Cal. 2010). In addition, a strong inference of scienter when 21 15cv1458 AJB (DHB) 1 arguing core operations must be made in conjunction with management’s exposure to 2 factual information. See In re Daou Sys., Inc., 411 F.3d 1006, 1022-23 (9th Cir. 2005) 3 (plaintiffs relied on “specific admissions from top executives that they are involved in 4 every detail of the company and that they monitored portions of the company’s database” 5 to support a strong inference of scienter”). Plaintiff provides no specific allegations or 6 admissions from Defendants regarding their responsibilities within the corporation. 7 Instead, Plaintiff states that Defendants were “deeply involved in all aspects of both clinical 8 trials.” (Doc. No. 58 ¶ 189.) Without more, these conclusory allegations do not provide a 9 strong indicia of scienter. 10 11 12 13 14 15 16 c. Scienter Alleged from the Termination of Defendant Zsebo Plaintiff claims that the timing of Defendant Zsebo’s termination as CEO of Celladon and removal from the Board of Directors creates a strong inference of scienter. (Id. ¶ 191.) Defendants argue that Plaintiff does not include any specific allegations that the resignation was due to any accusations of fraud. (Doc. No. 62-1 at 19.) The Court finds that whether Defendant Zsebo was terminated or resigned after Mydicar failed to pass CUPID 2 testing is not evidence of scienter on its own. As was concluded in In re Cornerstone Propane Partners, 355 F. Supp. 2d at 1093, “most major stock losses are often 17 accompanied by management departures, and it would be unwise for courts to penalize 18 directors for these decisions.” 19 d. Scienter Alleged from Insider Stock Sales 20 Plaintiff alleges that stock sales by Defendants Zsebo and Laba during the specified 21 class period creates a strong inference of scienter. Courts have repeatedly held that the 22 mere existence of stock sales does not raise a strong inference of fraudulent intent. Wenger 23 v. Lumisys, Inc., 2 F. Supp. 2d 1231, 1251 (N.D. Cal. March 31, 1998). Plaintiffs have the 24 burden at the pleading stage of explaining why the stock sales were unusual or suspicious. 25 See In re Health Mgmt. Sys. Inc. Sec. Litig., 1998 WL 283286, *3 (S.D.N.Y. June 1, 1998). 26 This requires a showing that the trading was “in amounts dramatically out of time with 27 28 prior trading practices, at times calculated to maximize personal benefit from undisclosed inside information.” Alfus v. Pyramid Technology Corp., 764 F. Supp. 598, 605 & n.1 22 15cv1458 AJB (DHB) 1 (N.D. Cal. April 11, 1991). Where a corporate insider sells only a small fraction of his or 2 her shares in the corporation, the inference of scienter is weakened. Acito, 47 F.3d at 54 3 (finding sale of 11% of holdings insufficient). 4 The Court finds that both Defendants Zsebo and Laba sold over 20% of their shares 5 during the Class Period. However, despite Plaintiff providing the Court with Defendants 6 Zsebo and Laba’s trading history during the Class Period, the Court is unable to analyze 7 whether or not Defendants’ stock sales during the Class Period were an unusual departure 8 from past trading practices without Defendants’ previous stock sale history. Without more 9 the Court is unable to find a strong inference of scienter. 10 11 12 13 14 15 16 e. Scienter Alleged through Corporate Scienter In evaluating allegations of corporate scienter, the Ninth Circuit has been wary of complaints that allege “facts critical to a business’s core operations or an important transaction generally are so apparent that their knowledge may be attributed to the company and its key officers.” In re Read-Rite Corp. Sec. Litig., 335 F.3d at 848. However, the Ninth Circuit has recently recognized two exceptions to the general rule and held that “bare allegations of falsely reported information [could be] probative under certain narrow conditions.” Zucco Partners LLC v. Digimore Corp., 552 F.3d 981, 1000 (9th Cir. 2009.) 17 To satisfy this exception, plaintiffs might include in their complaint specific details about 18 the defendants’ access to and review of information within the company. South Ferry LP, 19 No. 2, 542 F.3d at 785. See also In re Daou Sys. Inc., 411 F.3d at 1022 (“Specific 20 admissions from top executives that they are involved in every detail of the company and 21 that they monitored portions of the company’s database are factors in favor of inferring 22 scienter in light of improper accounting reports”); see also Nursing Home Pension Fund, 23 Local 144, 380 F.3d at 1231 (plaintiffs pled facts giving a strong inference of scienter 24 because the CEO of the defendant company was quoted as saying: “All of our information 25 is on one database. We know exactly how much we have sold in the last hour around the 26 world”). The second exception “permits an inference of scienter to arise where the 27 28 information that has allegedly been misrepresented is readily apparent to the defendant corporation’s senior management.” Zucco Partners LLC, 552 F. 3d at 1000. 23 15cv1458 AJB (DHB) 1 Plaintiff alleges that corporate officials who were “sufficiently knowledgeable” 2 about the company should have known that CUPID 2 would not have a positive outcome. 3 In addition, Plaintiff highlights that “at least one authorized agent of the company 4 authorized, requested, commanded, furnished information for, prepared, reviewed or 5 approved the statements in which the misrepresentations were made before their utterance 6 or issuance.” (Doc. No. 58 ¶ 201.) These allegations are conclusory and do not provide 7 specific details about each Defendants’ access to information, what Defendants knew, nor 8 how they knew it. In addition, Plaintiff’s broad statements do not allege which “authorized 9 agent” reviewed and ratified statements. These generalized conclusions do not add strength 10 11 12 13 14 15 16 to Plaintiff’s arguments for scienter. f. Scienter Alleged through Sarbanes Oxley Plaintiff alleges that Defendants Zsebo and Laba’s certifications on the Company’s Form 10-K filed with the SEC present an inference of scienter. “Boilerplate language in a corporation’s 10-K form, or required certifications under Sarbanes Oxley section 302(a), however, add nothing substantial to the scienter calculus.” Zucco Partners LLC, at 1004. Other circuits unanimously agree that “allowing Sarbanes-Oxley certifications to create an inference of scienter in ‘every case where there was an accounting error or auditing mistake 17 made by a publicly traded company’ would ‘eviscerate the pleading requirements for 18 scienter set forth in the PSLRA.’” Id.; Garfield v. NDC Health Corp., 466 F.3d 1255, 1266 19 (11th Cir. 2006); accord In re Ceridian Corp. Sec. Litig., 542 F. 3d 240, 248 (8th Cir. 20 2008). As a result, we reject Plaintiff’s argument that Defendants’ Sarbanes-Oxley 21 certifications create an inference of scienter. 22 g. Holistic Review 23 In Matrixx Initiatives v. Siracusano, 131 S. Ct. 1309, 1324 (2011), the Supreme court 24 emphasized that courts must “review all allegations holistically” when determining 25 whether scienter has been sufficiently pled. (quoting Tellabs, 551 U.S. at 326). The Court 26 finds that when read together, Plaintiff’s arguments for scienter are not sufficient to meet 27 the heightened standard of the PSLRA. 28 24 15cv1458 AJB (DHB) 1 At this time, the Court will not analyze the last factors of Plaintiff’s section 10(b) 2 claim. As Plaintiff has not pled his material misrepresentation and scienter claims to the 3 heightened standard as set by the PSLRA, Defendants’ motion to dismiss is GRANTED. 4 VII. CONCLUSION 5 The Court concludes that Plaintiff’s CAC does not reach the heightened standard set 6 by the PSLRA securities fraud complaints. Plaintiff’s repetitive and conclusory analysis in 7 stating an action for misrepresentation and scienter, though voluminous, do not plead with 8 the particularity required to survive a Federal Rule of Civil Procedure 12(b)(6) dismissal 9 of a Rule 10(b) and 10(b)-5 claim. Plaintiff’s Consolidated Amended Complaint is 10 dismissed in its entirety. We dismiss without prejudice and with leave to amend within 60 11 12 13 days from the date of the order. For the reasons set forth above, Defendants’ Motion to Dismiss and request for judicial notice is GRANTED. IT IS SO ORDERED. 14 15 Dated: October 7, 2016 16 17 18 19 20 21 22 23 24 25 26 27 28 25 15cv1458 AJB (DHB)
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